Foundations

A baseline for the region’s future



DFW RANKS NO. 2 IN OFFICE JOB GROWTH

Where are office jobs growing the fastest? Dallas-Fort Worth is among the top U.S. markets for office job-creating markets, 2010-2017, according to new research from JLL. DFW ranks second only to New York, a market nearly twice its size. Los Angeles, Atlanta, and San Francisco round out the top five. Other Texas markets performed well, too, with Houston coming in at No. 8, Austin at No. 18, and San Antonio at No. 23.

Overall, North Texas has added more than 750,000 jobs since 2010, JLL reports. More than a third of these jobs have been in the office employment sector, comprised of finance, information, and professional and business services. The office job gains have fueled 23 million square feet of absorption in Class A and Class B buildings since 2010.

The employment growth also has helped push the average DFW office vacancy rate to 19.2 percent—a near historic low—and helped landlords achieve sustained rent growth for the first time in years.

 

DFW’S INDUSTRIAL SECTOR RAGES ON

Strong fundamentals and a burgeoning population continue to drive demand in Dallas-Fort Worth’s industrial sector. Through the first three quarters of the year, the market absorbed a staggering 17.1 million square feet, according to a new Cushman & Wakefield report. It’s on track to absorb more than 20 million square feet for a second straight year.

North Fort Worth and the Interstate 20/Inland Port submarkets saw the greatest demand, each absorbing more than 1 million square feet in the third quarter. Overall vacancy stands at 6.8 percent, significantly less than the market’s historical average of 9.6 percent. 

Developers are responding to tenant demand. More than 3.7 million square feet of industrial space was added to the inventory during the third quarter of 2017, bringing the year-to-date total to nearly 15 million square feet, Cushman & Wakefield reports. Twenty-two new buildings totaling over 9 million square feet are on track to deliver in the fourth quarter, bringing the annual total to 23.9 million square feet—a 161 percent increase over the historical annual average of 9.2 million square feet.

 

A BREWERY REVOLUTION IN TEXAS

Texans love beer, and as the “foodie” culture has grown, so has the taste for well-crafted brews. That demand is being felt in the commercial real estate sector. According to research from CBRE, the number of craft breweries in Texas grew a whopping 990 percent in the past 12 years, up from 20 in 2005 to 218 in 2017.

The driving force behind the beer revolution in Texas is micro-breweries, which grew by nearly 5,000 percent, up from three in 2005 to 152 in 2017. Brewpubs make up a second segment—with 55 today, this group of restaurant-breweries increased 450 percent. “From its cottage roots before the 2008 recession, to its emergence as a niche beer category during the economic recovery, the Texas craft brew industry represents the spirit of this perspective,” said Robert Kramp, director of research and analysis for CBRE.

Since 2005, the amount of industrial and retail space occupied by craft brewers has grown 265 percent to 4.8 million square feet across Texas. The state now generates the third-highest economic output for craft breweries in the United States.

Brewery deals are helping to absorb second-generation retail space and sparking redevelopment of properties that previously housed everything from churches to auto repair shops, says Pam Flora, director of retail research for Cushman & Wakefield. Users look for space where they can focus on production, while also incorporating a retail component.

As with any high-growth industry, chatter has been rampant about a craft beer “bubble.” Some individual markets may face a shakeout in the next 12 to 18 months, Flora says. “However, we certainly do not see the trend ending soon. Nor do we see it reversing itself, even in those markets where competition is fiercest.”

 

SPEC SPACE IN DALLAS TRENDS HIGHER

With big occupiers like Toyota, JPMorgan Chase, Liberty Mutual, and others moving into their new campuses in North Texas, it shines the light on the amount of spec office space underway in the region. JLL breaks it down in a new research snapshot that analyzes the percentage of preleased space for under-construction projects.

Over the last few years, JLL reports, the percentage of DFW office space under construction that was preleased or built-to-suit for major tenants was extremely high, averaging 65 percent to 70 percent. The number was driven by large, multimillion-square-foot hubs for major corporations, as well as projects for smaller users, like CoreLogic in Cypress Waters and Raytheon in Plano. Many of those corporations took occupancy in 2017.

This has caused a dramatic shift in the balance of preleased and spec space in North Texas. Currently, preleased space accounts for just 22 percent of new office construction in Dallas, compared to the U.S. average of 49 percent. Of the 6.4 million square feet that’s underway, 5 million square feet of space remains to be leased, JLL reports. The market will need continued strong job growth to drive lease-up, the firm says.

 

DFW RETAIL MARKET: CONSTRUCTION, LEASING JUMP

The North Texas retail market is maintaining its record-high occupancy rate of 92.7 percent, despite some high-profile store closings. Weitzman reports that existing center leasing, the absorption of vacant anchor spaces, and significant lease-up of new projects are keeping the market “strongly positive.” In fact, the current retail occupancy rate for DFW ties that of 2016 as the highest in more than three decades.

Several factors are coming into play, including a strong metro-area economy, a demand-based construction market, and brisk retail leasing activity. Another important trend: a focus on food, entertainment, services, fitness, and other experiential-type uses in new and renovated projects. This helps drive customer traffic in a time of increasing e-commerce competition. 

Based on strong market fundamentals, DFW is on track to add approximately 3.2 million square feet in new and expanded projects at least 25,000 square feet in size. This represents a notable increase when compared to 2016’s construction total of 2.1 million square feet, Weitzman reports. The new space for 2017 represents the most active development market since 2008, when 4.9 million square feet of new retail space came online.